Forward-rate agreements show wagers for a quarter-point
rate cut within three months, the most since secretly taped
recordings of central bank Governor Marek Belka and the Interior
Minister Bartlomiej Sienkiewicz went public on June 14. Bonds
and the zloty held onto gains after Prime Minister Donald Tusk
asked lawmakers for a vote of confidence to bolster his
government amid the crisis. Lawmakers voted 237 to 203 in favor
of the cabinet late yesterday.

Belka, who has vowed not to resign, said in a Bloomberg
interview two days ago that the scandal won’t knock monetary
policy off track. Pressure to lower borrowing costs is
intensifying after cuts this month by the European Central Bank
and Hungary, according to ING Groep NV.

“Belka shut off speculation by saying he has no plans to
resign and put the tapes to the background of monetary policy,”
Adam Antoniak, a senior economist at UniCredit SpA’s Polish unit
Bank Pekao SA, said by phone yesterday. “Tusk getting a strong
mandate to govern limits speculation over the stability of the
cabinet.”

Secret Recordings

The Wprost magazine published a secretly recorded June 2013
conversation between Belka and Sienkiewicz, in which the central
bank chief purportedly offered the ruling party an election-year
stimulus in exchange for amendments to the central bank law.

The spread between three-month forward rate agreements and
the Warsaw Interbank Offered Rate fell to 24 basis points at
11:16 a.m. in Warsaw. It narrowed last week amid concern that
policy makers would seek to keep rates on hold for longer to
underline their independence after Belka’s taped comments
suggested he may be willing to help the government win an
election.

“Don’t count on our monetary policy being changed after
what has happened,” Belka said in the interview. “Of course my
credibility was hurt. And one way to rebuild it is to stay the
course.”

The scandal won’t affect the work of the MPC, Elzbieta
Chojna-Duch, one of the nine rate-setters on the panel besides
Belka, said two days ago, adding she may file a motion for an
interest-rate cut in July. There’s no “broader economic
context” of the tape scandal, Jan Winiecki, a fellow policy
maker, also said yesterday.

Independence ‘Doubts’

The Monetary Policy Council will vote to lower its
benchmark rate from a record-low 2.5 percent in September, ING
economist Grzegorz Ogonek said by phone from Warsaw yesterday.
“The macroeconomic situation will outweigh doubts over the
central bank’s independence,” he said.

Retail sales in eastern Europe’s largest economy increased
3.8 percent in May from a year earlier, dropping from an 8.4
percent pace in April and missing a 6.2 percent median estimate
in a Bloomberg survey of 23 economists, the Statistics Office
said today. While economic growth accelerated to 3.4 percent in
the first quarter, the fastest in two years, consumer price
gains unexpectedly slowed to an annual 0.2 percent in May,
staying below the MPC’s 2.5 percent target for an 18th month.

“What we have is not yet deflation, but we could have a
negative inflation index in the third quarter,” Belka said.
“Up to a certain point, the only option for the future was to
increase interest rates. Now we have take into account the
option to decrease them as well. Of course, we’re not planning
to and a rate cut is still rather improbable.”

‘External Factors’

Hungary’s central bank said on June 24 it may reduce its
benchmark rate further after cutting it to a record-low 2.3
percent in its 23rd consecutive cut. Hungarian inflation stayed
below zero for a second month in May. The European Central Bank
this month lowered its deposit rate to minus 0.1 percent and
reduced the main refinancing rate to an all-time low 0.15
percent as it battles the threat of deflation.

“I see a lower likelihood of rate cuts than the market as
deflation will be caused by external supply factors,” which
local policy makers have no control over, Marcin Karasiewicz, a
fixed-income and interest-rate derivatives trader at PKO Bank
Polski SA, said by e-mail yesterday.

The zloty was little changed at 4.1376 per euro today. The
yield on Poland’s two-year government notes increased three
basis points 2.52 percent, rising from an all-time low yesterday
and boosting the spread over similar-maturity German securities
rose to 249 basis points.

“The tape scandal is fading away,” Grzegorz Maliszewski,
chief economist at Bank Millennium SA, said by phone yesterday.
“Macroeconomic and global factors are now coming back into the
spotlight.”